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Fiat-Chrysler deal: Chrysler heads for bankruptcy as talks collapse
By Amarendra Bhushan for CEOWORLD Magazine Updated:April 30, 2009
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Chrysler, one of the world’s biggest carmakers, headed to clinch deals with Fiat and a fractious group of lenders in a effort to avoid bankruptcy ahead of a government-imposed April 30 restructuring deadline.
According to a report in the Wall Street Journal citing people familiar with the matter, those efforts hit a major roadblock late in the day as talks between the U.S. Treasury Department and lenders collapsed.
This meant bankruptcy for Chrysler was “all but certain”, the report said, citing those sources.
If the agreement goes sour or difficult to secure, the 84-year old US car maker is expected to seek Chapter 11 protection from creditors later today.
President Obama’s automotive task force had yesterday increased an offer to lenders to accept $2.25 billion in cash to forgive the debts. Even though, it failed to persuade a small number of hedge funds and other lenders to accept a deal to write-off $6.9 billion worth of debt.
“I’ve spoken to them and I think there is reasonable optimism that (a deal) can be closed with an announcement perhaps even by President Obama today and we hope it is this way,” Claudio Scajola told Italian television.
He said once Fiat has concluded a deal with Chrysler, it would have “good cards” to play in a reorganization of the European car sector.
- Federal and Ontario governments will jointly hold a 2 per cent equity stake in Chrysler.
- Fiat (FIATY) to own up to 35 per cent of the new company.
- The United Auto Workers would take a 55 per cent interest in Chrysler (union agreed to cut more than half of the company’s $10.6 billion (U.S.) obligations to a retiree health-care trust fund. )
- Unlike the UAW, the CAW won’t take a stake in Chrysler because the company doesn’t have the same health-care obligations in Canada.
- Fiat won’t invest any money for its stake in Chrysler but will share small car and engine technology.
- Fiat would sell some European-made models in North America through Chrysler dealerships and sell Windsor-made minivans and other models abroad.
- Several hedge funds and other lenders rejected Treasury’s sweetened offer of $2.25 billion for forgiving $6.9 billion of Chrysler’s debt.
Four banks – Morgan Stanley (MS), JPMorgan (JPM) Goldman Sachs (GS) and Citigroup (C) – have agreed to accept $2 billion in cash, but hedge funds continue to balk, the source said. All lenders need to agree for the deal to go through outside of bankruptcy.
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